BATON ROUGE, La. — The Teachers' Retirement System of Louisiana saved at least $40 million in commission costs when it moved its small-cap and midcap allocation to a core strategy from value and growth.
Using Credit Suisse First Boston LLC, New York, as its transition manager, the $12.7 billion pension system bought $1.3 billion in core small-cap and midcap domestic equities, funding five new managers, and sold $900 million in small-cap and midcap value and growth equities, terminating six managers.
Dan Bryant, Louisiana Teachers' chief investment officer, said the transition, which was mostly completed in one day, cost the system about $20 million.
"Using rough numbers, we saved about a minimum of $40 million," he said. "And the potential loss from market impact over, say, a week could have been $100 million." (Mr. Bryant calculated the savings based on a typical 2.5% round-trip cost to do the trades.)
Richard Kos, an independent plan sponsor and mutual fund adviser who has consulted on transitions worth a combined $7 billion in the last 12 months, said determining how transitions are handled depends on the unique characteristics of each one.
"You're looking at a portfolio of stocks and even though the risk of one stock can be horrific, the risk at the portfolio level is much lower because they're not correlated," he explained. "And to the extent you have both the buy and the sell side of the portfolio, the risk is further reduced and that leaves you with the tracking error.